Now is still a great time to be raising money for your business
While the initial shock of lockdown was evident in early April with some deal processes being postponed or even falling away entirely, the surprise has perhaps been the speed of the bounce back in new deal activity in just a few weeks, according to David Gee, an investment committee member at YFM Equity Partners (YFM).
With over 30 years’ private equity experience, David has invested through the 90s recession and recovery, the dotcom bubble, the 2008 banking crisis and, despite reports to the contrary, says we stand here today, with lots of VC appetite for new investments.
“When the UK first went into lockdown six weeks ago, the worry for many business owners and start-ups was that potential investors may be losing their appetite, or they would be too portfolio-focused to consider new opportunities,” explains David.
“In fact, we are already seeing some winners in the market push ahead with their business plans, particularly early stage tech businesses who have adapted quickly or were already geared up for remote working. There are businesses which have been relatively unaffected by the current ‘pause’ who want to move forward with offers or discussions, but with a focus on putting the relationship first –partnering with the right PE team to help them through uncertain times, is a key component in getting the best deal.”
He continues: “As a firm which likes to get close to its portfolio businesses, the need for social distancing in recent weeks has presented some challenges, but we’ve been able to adapt our own processes and use technology to virtually meet management teams, introduce non-exec candidates and work through our due diligence.
“It’s important to look beyond the current disruption – a good venture capital investor is a long-term supportive partner that knows the business well and doesn’t overreact when plans change. One way of ensuring this is to raise finance with a house that is very much open for business in a downturn and one that is prepared to take time to understand the people and markets in a less than ideal environment. YFM has recently raised a new £80m buyout fund to support SMEs throughout the UK, demonstrating our belief in future opportunities.
“Having been in the business for almost 40 years, we’ve invested through many economic cycles and are able to see beyond the immediate challenges. In fact, taking investment in a downturn can free up a company to expand both by acquisition and in preparing an organic plan to maximise the opportunity in a market that may well be less competitive and in a greater state of flux on which to capitalise.”
For example, in the early 90s, ICM Computer Group made a step jump in its operations with the distressed purchase of a rival business’s disaster recovery business, out of receivership. At the nadir of the 2000s telecom downturn, an investment in Sarian Systems enabled the company to position itself to take maximum advantage of the subsequent upturn in mobile technology, taking a medium-term view. In the later stages of the last financial crash, YFM funded the MBO of Sheffield-based PEGL from the wider group, stepping in to invest at short notice when a bank was concerned about risk.
David concludes: “Those of us with a long track record in PE are well aware that things are very uncertain, and the speed and shape of recovery is unknown. Indeed, talk of V and U shape recessions are usually over simplified and the hit to confidence of any downturn often results in an elongated, slower improvement than expected. A robust financing structure with good levels of headroom with little or no gearing is, therefore, vital to ride the inevitable further bumps along the way and any elongated recovery.
“Any investor active in the current market should be taking this supportive, partnership approach and looking at the bigger medium-term opportunities in such a way. Any company raising finance should be looking for a partner that understands this, has expert experience and can actively help them with their plans.”
